SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 Commission File No. 0-9785
TRI CITY BANKSHARES CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1158740
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6400 South 27th Street
Oak Creek, Wisconsin 53154
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 761-1610
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
$1.00 Par Value Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) (2) and has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
As of March 1, 2000, 933,735 shares of common stock were outstanding and the
aggregate market value of the shares held by non-affiliates was approximately
$35,528,617.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated in
- -------- ---------------
Annual report to shareholders for fiscal year ended
December 31, 1999 Parts II and IV
Proxystatement for annual meeting of shareholders
to be held on June 14, 2000. Part III
<PAGE>
PART I
Item 1 Business 1
Item 2 Properties 16
Item 3 Legal Proceedings 18
Item 4 Submission of Matters to a Vote of Security Holders 18
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters 19
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 7A Quantitative and Qualitative Disclosures About
Market Risk 19
Item 8 Consolidated Financial Statements and Suppl19entary Data 19
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10 Directors and Executive Officers of the Registrant 20
Item 11 Executive Compensation 20
Item 12 Security Ownership of Certain Beneficial Owners and
Management 20
Item 13 Certain Relationships and Related Transactions 20
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 21
Signatures 24
<PAGE>
PART I
Item 1. BUSINESS
GENERAL
Tri City Bankshares Corporation (Registrant), a registered bank holding company,
is a Wisconsin corporation organized in 1970 which provides commercial banking
services in the metropolitan Milwaukee area, through its wholly-owned subsidiary
Tri City National Bank (the Bank).
In addition to Tri City National Bank, the Registrant owns 23.5% of the
outstanding shares in First National Bank of Eagle River, Eagle River, Wisconsin
(First National). The Registrant's investment in First National is accounted for
by the equity method of accounting.
On a consolidated basis at December 31, 1999, Registrant had assets of
$529,190,815, net loans of $314,559,078 deposits of $459,469,937 and
stockholders' equity of $63,124,833. Registrant's primary function is to
coordinate the banking policies and operations of Tri City National Bank in
order to improve and expand its banking services and effect economies in its
operation by joint efforts in certain areas such as auditing, regulatory
compliance, training of personnel, advertising, proof and bookkeeping, and
business development. Registrant's services are furnished through officers of
Registrant who are also officers of Tri City National Bank. Registrant's sources
of revenues are (1) dividends paid on the shares of the subsidiary banks' stock
which it owns and (2) management fees in payment for the services it provides to
Tri City National Bank.
Registrant is engaged in only one segment, namely commercial banking.
The Registrant's banking business is principally conducted by one commercial
bank bearing the "Tri City" name. Tri City National Bank is supervised by the
Comptroller of the Currency and its deposits are insured by the Federal Deposit
Insurance Corporation. Tri City National Bank provides full-service banking to
individuals and businesses, including checking and savings accounts, commercial
and consumer loans, installment loans, real estate and mortgage loans, mobile
home loans, Master Charge cards, and personal reserve accounts. Tri City
National Bank maintains an investment portfolio consisting primarily of U.S.
Agency and state and political subdivision securities. Certain bank locations
have drive-in banking facilities. A separate department provides centralized
proof and bookkeeping services to all Tri City National Bank locations.
<PAGE>
The following table sets forth certain information regarding Tri City National
Bank:
Assets as of
Name of Bank and Location Year Organized December 31, 1999
- ------------------------- -------------- -----------------
Tri City National Bank
6400 South 27th Street
Oak Creek, Wisconsin 1963 $526,845,146
SUPERVISION AND REGULATION
As a bank holding company, Registrant is registered under the Bank Holding
Company Act of 1956, as amended, and files periodic reports with, and is subject
to the supervision of, the Federal Reserve Board (the Board). The Board has the
power to make examinations of the Registrant and must give its approval prior to
the Registrant's acquiring substantially all of the assets of a bank or direct
or indirect ownership or control of any voting shares of any bank if, after such
acquisition, Registrant would control more than 5% of the voting shares of such
bank. The Board approved Registrant's acquisition of the shares of First
National by order dated October 2, 1981. The Board expects bank holding
companies, such as Registrant, to be a source of financial strength for their
subsidiary banks and, accordingly, the Board may condition approvals of bank
acquisitions on the injection of additional capital into existing banks if
capital-to-asset ratios do not meet the Board's standards. The Bank Holding
Company Act restricts Registrant's ability to engage only in those activities
which are found by the Board to be so closely related to banking as to be a
proper incident thereto.
Tri City National Bank is regularly examined by the Comptroller of the Currency
and is subject to examination by the Federal Deposit Insurance Corporation.
Areas subject to regulation by these two federal agencies include capital,
allowance for loan loss, investments, loans, mergers, issuance of securities,
payment of dividends, establishment of branches and other aspects of operations.
The banking industry is very heavily regulated at both the state and federal
levels. Since 1979, Congress has enacted major pieces of legislation affecting
the banking industry: the Community Reinvestment Act (to encourage banks to make
loans to individuals and businesses in their immediate service areas,
particularly to low- and middle-income borrowers); the Financial Institutions
Regulatory and Interest Rate Control Act (to add restrictions dealing with loans
to officers, directors, and principal shareholders of banks and their
affiliates); the Financial Institutions Deregulation and Monetary Control Act
(to permit both banks and thrift institutions to pay interest on checking
accounts and phase out prior ceilings on interest rates); the Competitive
Equality Banking Act (to expand the definition of "bank" under the Bank Holding
Company Act to include all institutions insured by the Federal Deposit Insurance
Corporation and thereby restrict the ability of bank holding companies and
certain commercial and other nonbanking firms to acquire "non-bank banks"); and
the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or
FIRREA (comprehensive legislation to reform the very nature of regulation in the
financial institutions industry) and the Federal
<PAGE>
Deposit Insurance Corporation Improvement Act (FDICIA). FDICIA, which was
enacted in 1991, affects all federally insured banks, savings banks and thrifts.
FDICIA contains a $70 billion recapitalization of the Bank Insurance Fund (BIF)
by significantly increasing the amount that the FDIC can borrow from the
Treasury. The FDIC must assess premiums that are sufficient to give the BIF
reserves of $1.25 for each $100 of insured deposits. Additional significant
provisions of FDICIA include requiring prompt corrective action by regulators if
minimum capital standards are not met; establishing early intervention
procedures for "significantly" undercapitalized institutions; limiting FDIC
reimbursement of uninsured deposits when large banks fail; requiring an annual
regulatory examination; and imposing new auditing and accounting requirements,
effective for fiscal years beginning on or after January 1, 1993, including
management and auditor reporting on internal controls over financial reporting
and on compliance with laws and regulations for banks with assets in excess of
$500 million. Additionally, a number of legislative and regulatory mandates have
been enacted that are designed to strengthen the federal deposit insurance
system and to improve the overall financial stability of the U.S. banking
system. It is uncertain what form future proposals may take and, if adopted,
what their effect will be on Registrant and its principal bank subsidiary.
The laws and regulations to which the Registrant is subject are constantly under
review by Congress, regulatory agencies and state legislatures. On November 12,
1999, President Clinton signed important legislation passed by Congress to
overturn Depression-era restrictions on affiliations by banking organizations.
This comprehensive legislation, referred to as the Gramm-Leach-Bliley Act (the
Act), eliminates certain barriers to and restrictions on affiliations between
banks and securities firms, insurance companies and other financial services
organizations. The Act provides for a new type of "financial holding company"
structure under which affiliations among these entities may occur, subject to
the regulation of the Board and regulation of affiliates by the functional
regulators, including the Securities and Exchange Commission (the SEC) and state
insurance regulators. In addition, the Act permits certain non-banking financial
and financially related activities to be conducted by operating subsidiaries of
a national bank. Under the Act, a bank holding company may become certified as a
financial holding company by filing a notice with the Board, together with a
certification that the bank holding company meets certain criteria, including
capital, management and Community Reinvestment Act requirements. The Act
contains a number of provisions allocating regulatory authority among the Board,
other banking regulators, the SEC and state insurance regulators. In addition,
the Act imposes strict new privacy disclosure and "opt out" requirements
regarding the ability of financial institutions to share personal non-public
customer information with third parties.
Other important provisions of the Act permit merchant banking and venture
capital activities, and insurance underwriting, to be conducted by a subsidiary
of a financial holding company, and municipal securities underwriting activities
to be conducted directly by a national bank or by its subsidiary. Under the Act,
the financial holding company may engage in a broad list of "financial
activities," and any non-financial activity that the Board determines is
"complementary" to a financial activity and poses no substantial risk to the
safety and soundness of depository institutions or the financial system.
<PAGE>
While certain provisions of the Act became effective on November 12, 1999, other
provisions are subject to delayed effective dates, and in some cases, will be
implemented only upon the adoption by federal regulatory agencies of rules
prescribed by the Act.
CAPITAL REQUIREMENTS
See footnote 8 to the audited financial statements for a discussion of the
capital requirements of the Registrant and the Bank.
MONETARY POLICY
Registrant's operations and earnings are affected by the credit policies of
monetary authorities, including the Federal Reserve System, which regulates the
national supply of bank credit. Such regulation influences overall growth of
bank loans, investments, and deposits, and may also affect interest rates
charged on loans and paid on deposits. The monetary policies of the Federal
Reserve authorities have had a significant effect on the operating results of
bank holding companies and commercial banks in the past and are expected to
continue to do so in the future.
COMPETITION
All of the Registrant's banking facilities are located in Milwaukee, Waukesha,
Racine and Ozaukee Counties. Accordingly, the bank competes with all the major
banks and bank holding companies located in metropolitan Milwaukee, most of whom
are far larger in terms of assets and deposits. The banking industry in this
area is highly competitive and the Registrant's bank faces vigorous competition
not only from the many banks in the area, but from other financial institutions
such as savings and loan associations, credit unions, and finance companies.
EMPLOYEES
At December 31, 1999, Registrant employed 88 officers and 330 employees in
total. Employees are provided a variety of employment benefits, and Registrant
considers its employee relations to be excellent.
The following pages set forth the statistical data required by Guide 3 of the
Securities and Exchange Commission Guides for Preparation and Filing of Reports
and Registration Statements and Reports.
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
(Dollars in Thousands)
The following table shows average assets, liabilities and stockholders' equity;
the interest earned and average yield on interest-earning assets; the interest
paid and average rate on interest-bearing liabilities, the net interest
earnings, the net interest rate spread and the net yield on interest-earning
assets for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
Average Yield Average Yield Average Yield
Balance Interest or Rate Balance Interest or Rate Balance Interest or Rate
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) $296,868 $25,912 8.73% $272,324 $25,593 9.39% $259,976 $24,764 9.53%
Taxable
investment securities 63,106 3,891 6.17 56,055 3,855 6.88 63,889 4,360 6.82
Nontaxable investment
securities(2) 84,695 5,731 6.77 70,586 4,866 6.89 56,903 4,404 7.74
Federal funds sold 4,146 203 4.90 15,664 824 5.26 6,118 340 5.56
------------------ ------------------ -----------------
Total interest-earning
assets 448,815 35,737 7.96% 414,629 35,138 8.47% 386,886 33,868 8.75%
Noninterest-earning
assets:
Cash and due from banks 35,381 30,063 28,217
Premises and
equipment, net 20,837 18,362 18,534
Other assets 2,199 2,383 2,567
--------- --------- ---------
$507,232 $465,437 $436,204
========= ========= =========
</TABLE>
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------------
Average Yield Average Yield Average Yield
Balance Interest or Rate Balance Interest or Rate Balance Interest or Rate
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits $196,559 $ 4,758 2.42% $182,111 $ 4,978 2.73% $169,513 $ 4,677 2.76%
Other time deposits 113,791 5,745 5.05 109,690 6,010 5.48 102,088 5,614 5.50
Short-term borrowings 8,796 460 5.24 3,004 183 6.09 6,649 366 5.50
----------------------------------------------------------------------------------
Total interest-bearing
liabilities 319,146 10,963 3.44 294,805 11,171 3.79% 278,250 10,657 3.83%
Noninterest-bearing liabilities:
Demand deposits 124,696 112,504 104,493
Other 3,696 3,006 3,175
Stockholders' equity 60,144 55,122 50,286
---------- ---------- ----------
$507,232 $465,437 $436,204
========== ========== ==========
Net interest earnings and
interest rate spread $24,774 4.52% $23,967 4.68% $23,211 4.92%
=============== =============== ===============
Net yield on interest-earning assets 5.52% 5.78% 6.00%
===== ===== =====
</TABLE>
(1) For purposes of these computations, nonaccrual loans are included in the
daily average loan amounts outstanding. Interest income includes $1,736,
$1,747 and $1,431 of loan fees in 1999, 1998 and 1997, respectively.
(2) Nontaxable investment securities income has been stated on a fully taxable
equivalent basis using a 34% adjusting rate. The related tax equivalent
adjustment for calculations of yield was $1,949, $1,598 and $1,668 in 1999,
1998 and 1997, respectively.
<PAGE>
INTEREST INCOME AND EXPENSE VOLUME AND RATE CHANGE
(Dollars in Thousands)
The following table sets forth, for the periods indicated, a summary of the
changes in interest earned (on a fully taxable equivalent basis) and interest
paid resulting from changes in volume and changes in rates:
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------ ------------------------------
Volume Rate(1) Net Volume Rate(1) Net
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 2,304 $(1,985) $ 319 $1,176 $ (347) $ 829
Taxable investment securities 485 (449) 36 (534) 29 (505)
Nontaxable investment securities 972 (107) 865 1,059 (597) 462
Federal funds sold (606) (15) (621) 531 (47) 484
------------------------------ ------------------------------
Total interest-earning assets $ 3,155 $(2,556) $ 599 $2,232 $ (962) $1,270
=====================--------- =====================---------
Interest paid on:
Savings deposits $ 394 $ (614) $ (220) $ 348 $ (47) $ 301
Other time deposits 225 (490) (265) 418 (22) 396
Short-term borrowings 353 (75) 278 (200) 17 (183)
------------------------------ ------------------------------
Total interest-bearing liabilities $ 972 $(1,179) $ (208) $ 566 $ (52) 514
=====================--------- =====================---------
Increase in net interest income $ 807 $ 756
========= =========
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
rate changes.
<PAGE>
INVESTMENT PORTFOLIO
(Dollars in Thousands)
The book value of investment securities at the dates indicated is:
December 31
------------------------------------
1999 1998 1997
------------------------------------
U.S. Treasury and government agencies $ 56,446 $ 56,948 $ 54,336
States and political subdivisions 85,576 77,590 72,017
Industrial revenue bonds 0 0 46
------------------------------------
Total investment securities $142,022 $134,538 $126,399
====================================
The following table sets forth the maturities of investment securities at
December 31, 1999, the weighted average yields of such securities (calculated on
the basis of the cost and effective yields weighted for the scheduled maturity
of each security) and the tax-equivalent adjustment used in calculating the
yields.
<TABLE>
<CAPTION>
Maturity
-------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years
Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S.Treasury and government
agencies $ 2,502 7.61% $ 39,000 5.90% $ 14,944 6.39%
States and political
subdivisions 4,229 6.71 53,993 6.67 27,354 6.93
--------- --------- ---------
$ 6,731 7.04% $ 92,993 6.35% $ 42,298 6.74%
========= ========= =========
Tax equivalent adjustment
for Calculation of yield $ 97 $ 1,179 $ 673
========= ========= =========
</TABLE>
Note: The weighted average yields on tax-exempt obligations have been
computed on a fully tax-equivalent basis assuming a tax rate of 34%.
<PAGE>
LOAN PORTFOLIO
(Dollars in Thousands)
The amounts of loans outstanding at the indicated dates are shown in the
following table according to type of loan:
December 31
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Commercial $ 26,954 $ 13,730 $ 13,015 $ 10,414 $ 11,058
Real estate-- construction 16,503 16,358 19,148 16,142 21,692
Real estate-- mortgage 247,957 215,381 201,322 191,288 167,945
Installment 27,485 31,715 33,914 35,908 31,777
------- -------- -------- -------- -------
$318,899 $277,184 $267,399 $253,752 $232,472
======= ======= ======== ======== ========
The maturity distribution of all loans at December 31, 1999, are:
Maturity
After One
One Year Through After
or Less Five YearsFive Years Total
Commercial $10,039 $15,641 $1,274 $26,954
Real estate construction 13,830 2,585 88 16,503
Real estate mortgage 71,391 169,904 6,662 247,957
Installment Loans 5,638 15,824 6,023 27,485
------- ------- ----- -------
$100,898 $203,954 $14,047 $318,899
========= ======== ======= ========
Interest rate sensitivity of all loans with maturities greater than one year at
December 31, 1999, are:
Interest Sensitivity
Fixed Rate Variable Rate
Due after one, but within five years $ 196,345 $ 7,609
Due after five years 13,526 521
------ -------
$ 209,871 $ 8,130
========= ========
<PAGE>
LOAN PORTFOLIO (Continued)
(Dollars in Thousands)
The following table presents information concerning the aggregate amount of
nonperforming loans. Nonperforming loans are comprised of (a) loans accounted
for on a nonaccrual basis and (b) loans contractually past due 90 days or more
as to interest or principal payments, for which interest continues to be
accrued.
December 31
- -------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Loans accounted for on a
nonaccrual basis $ 595 $ 334 $ -0- $ 725 $1,033
Loans contractually past due
90 days or more as to interest
or principal payments 1,372 1,848 694 1,220 630
Ratio of nonaccrual loans to
total loans .19% .12% 0% .28% .44%
Interest income of $28,000 was recognized during 1999 on loans which were
accounted for on a nonaccrual basis. An additional $8,000 of interest income
would have been recorded in 1999 under the original loan terms had these loans
not been assigned nonaccrual status.
The accrual of interest income is generally discontinued when a loan becomes 90
days past due as to principal or interest. Registrant's management may continue
the accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest.
There were no other loans at December 31, 1999 or 1998 whose terms had been
renegotiated to provide a reduction or deferral of interest or principal because
of a deterioration in the financial position of the borrower, and there are no
current loans where, in the opinion of management, there are serious doubts as
to the ability of the borrower to comply with present loan repayment terms.
Loans defined as impaired by Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," if any, are included in
nonaccrual loans above.
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
The following table summarizes loan loss allowance balances at the beginning and
end of each year; changes in the allowance for loan losses arising from loans
charged off and recoveries on loans previously charged-off, by loan category;
additions to the allowance which have been charged to expense; and the ratio of
net charge-offs to the daily average balance of loans outstanding.
Year Ended December 31
- -----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance of allowance for loan losses
at beginning of period $4,245 $3,500 $3,010 $3,626 $3,395
Loans charged-off:
Commercial 116 0 57 899 0
Real estate 9 0 0 0 0
Installment 61 154 97 23 21
------ ------ ------ ----- ------
TOTAL LOANS CHARGED-OFF 186 154 154 922 21
Recoveries of loans previously
charged-off:
Commercial 12 0 20 0 0
Real estate 0 244 0 0 0
Installment 44 55 24 6 4
------ ------- ------ ----- -----
TOTAL RECOVERIES 56 299 44 6 4
------ ------ ------ ----- -----
Net loans charged-off (recovered) 130 (145) 110 916 17
Additions to allowance charged to
expense 225 600 600 300 248
----- ----- ----- ----- -----
Balance at end of period $4,340 $4,245 $3,500 $3,010 $3,626
====== ====== ====== ====== ======
Ratio of net loans charged-off
(recoveries)during the period
to average loans outstanding .04% (.05%) .04% .38% .01%
==== ===== ==== ==== ====
Ratio of allowance at end of year
to total loans 1.36% 1.53% 1.31% 1.19% 1.56%
===== ===== ===== ===== =====
Ratio of allowance at end of year
to nonaccrual loans 729.41% 1,270.96% NMF* 415.17% 351.02%
======= ========= ==== ======= =======
*Data not meaningful
The additions to the allowance charged to operating expense is the amount
necessary to bring the allowance for loan losses to a level which will provide
for known and estimable losses in the loan portfolio. The adequacy of the
allowance is based principally upon continuing management review for potential
losses in the portfolio, actual charge-offs during the year, historical loss
experience, current and anticipated economic conditions, estimated value of
collateral and industry guidelines.
Management evaluates the adequacy of the allowance for loan losses on an overall
basis as opposed to allocating the allowance to specific categories of loans.
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
The Bank has a loan committee which meets periodically. Its function is to
review new loan applications and to ensure adherence to the written loan and
credit policies of the Bank. The committee reviews a summary of the loan
portfolio classified into the risk categories monthly. Loans are reviewed
quarterly or as necessary as to proper classification.
1. Absence of any significant credit risk.
2. Presence of normal, but not undue, credit risk.
3. Presence of greater than normal credit risk.
4. Excess credit risk requiring continuous monitoring.
5. Doubtful and loss.
The balance in each of the aforementioned categories serves as a guideline in
determining the adequacy of the allowance for loan losses and the provision
required to bring this balance to a level necessary to absorb the present and
potential risk characteristics of the loan portfolio.
The Bank's loan committee also considers collection problems which may exist.
Loans with contractual payments more than 90 days past due are reviewed. If
collection possibilities are considered to be remote, the loan is charged-off to
the allowance for loan losses. Should any special circumstances exist, such as a
reasonable belief that the loan may ultimately be paid or be sufficiently
secured by collateral having established marketability, the loan may be
rewritten or carried in a nonaccrual of interest status.
Real estate loans comprise the largest portion of the loan portfolio with 82.93%
of loans outstanding at December 31, 1999. The majority of the real estate loan
portfolio consists of residential mortgage loans, an area in which the
Registrant has had few losses in past years.
In the installment loan category, which includes auto loans, home improvement
loans, and credit card loans, among others, management considers the historical
net loss experience to be the best indicator of losses to be expected in the
immediate future.
The remainder of the loan portfolio consists of loans classified as commercial.
While these loans carry the greatest exposure to risk of loss, that exposure is
limited to problems associated with particular companies rather than to specific
industries and are generally more difficult to predict.
Losses in 2000 are not expected to vary significantly from net losses
experienced over the last two years.
<PAGE>
DEPOSITS
(Dollars in Thousands)
The average daily balance of deposits and the average rate paid on deposits is
summarized for the periods indicated in the following table:
Year Ended December 31
----------------------------------------------------
1999 1998 1997
====================================================
Amount Rate Amount Rate Amount Rate
----------------------------------------------------
Noninterest-bearing demand
deposits $124,696 0.00% $112,504 0.00% $104,493 0.00%
Interest bearing
transaction deposits 86,364 2.52% 80,090 2.69% 80,517 2.65%
Savings 110,195 2.35% 102,021 2.77 88,995 2.86
Time deposits (excluding
time certificates of
deposit of $100,000 or
more) 84,084 5.22% 81,877 5.85 77,221 5.69
Time certificates of
deposits of $100,000 or
more $ 29,707 4.56% $ 27,813 4.39 $ 24,867 4.91
--------- --------- ---------
$435,046 $404,305 $376,093
========= ========= =========
The maturity distribution of time certificates of deposit issued in amounts of
$100,000 and over and outstanding at December 31, 1999, is:
Three months or less $7,282
After 3 through 6 months 4,280
After 6 through 12 months 5,361
After 1 year through 2 years 4,768
After 2 years through 3 years 676
After 3 years through 4 years 1,894
After 4 years through 5 years 1,831
------
$26,092
=======
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios of the
Registrant for each of the last three years:
Year Ended December 31
1999 1998 1997
---- ---- ----
Percentage of net income to:
Average stockholders' equity 11.66% 12.65% 12.91%
Average total assets 1.38 1.50 1.49
Percentage of dividends declared per common
share to net income per common share 43.32 36.10 32.69
Percentage of average stockholders' equity
to daily average total assets 11.86 11.84 11.53
<PAGE>
SHORT-TERM BORROWINGS
(Dollars in Thousands)
Information relating to short-term borrowings follows:
Federal Funds Purchased
and Securities Sold Under Other Short-Term
Agreements to Repurchase Borrowings
------------------------- ----------------
Balance at December 31:
1999 $ 0 $ 4,579
1998 0 827
1997 0 5,711
Weighted average interest rate at year end:
1999 0 5.55%
1998 0 5.54
1997 0 5.80
Maximum amount outstanding at any month's end:
1999 $15,650 6,006
1998 10,000 5,265
1997 16,500 5,711
Average amount outstanding during the year:
1999 $ 6,863 $ 1,933
1998 769 1,847
1997 4,460 2,189
Average interest rate during the year:
1999 5.14% 4.75%
1998 5.94 6.12
1997 5.79 5.12
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days of the transaction date. Notes payable
mature in one year and are renewable for a like term. Other short-term
borrowings generally mature within 90 days.
<PAGE>
Item 2. PROPERTIES
The following table summarizes the properties in which the Registrant's bank
conducts its business:
Approximate
Location Floor Area in Square Feet Owned or Leased
-------- ------------------------- ---------------
6400 South 27th Street
Oak Creek, Wisconsin 16,000 Leased(1)
3701 South 27th Street
Milwaukee, Wisconsin 570 Leased(1)
6462 South 27th Street
Oak Creek, Wisconsin 580 Leased(1)
2555 West Ryan Road
Oak Creek, Wisconsin 2,000 Owned
5555 South 108th Street
Hales Corners, Wisconsin 20,000 Owned
5455 South 108th Street
Hales Corners, Wisconsin 1,600 Owned
10909 West Greenfield Avenue
West Allis, Wisconsin 9,000 Owned
10200 West Bluemound Road
Wauwatosa, Wisconsin 200 Leased
10859 West Bluemound Road
Wauwatosa, Wisconsin 3,500 Owned
2625 South 108th Street
West Allis, Wisconsin 640 Leased(1)
4455 West Bradley Road
Brown Deer, Wisconsin 6,600 Leased
7213 North Teutonia
Milwaukee, Wisconsin 2,000 Owned
17100 West Bluemound Road
Brookfield, Wisconsin 5,700 Owned
<PAGE>
Approximate
Location Floor Area in Square Feet Owned or Leased
-------- ------------------------- ---------------
12745 West Capitol Drive
Brookfield, Wisconsin 6,500 Owned
12735 West Capitol Drive
Brookfield, Wisconsin 720 Leased(1)
N96 W18221 County Line Road
Menomonee Falls, Wisconsin 4,100 Owned
7525 West Oklahoma Avenue
Milwaukee, Wisconsin 6,400 Leased(1)
3378 South 27th Street
Milwaukee, Wisconsin 1,900 Owned
6767 West Greenfield Avenue
West Allis, Wisconsin 5,200 Owned
6760 West National Avenue
West Allis, Wisconsin 710 Leased(1)
9200 North Green Bay Road
Brown Deer, Wisconsin 386 Leased
220 East Sunset Drive
Waukesha, Wisconsin 412 Leased
1827 Wisconsin Avenue
Grafton, Wisconsin 361 Leased
W61 N529 Washington Avenue
Cedarburg, Wisconsin 7,800 Owned
4200 South 76th St.
Greenfield, Wisconsin 53220 572 Leased(1)
150 West Holt Avenue
Milwaukee, Wisconsin 590 Leased(1)
6201 N. Teutonia Avenue
Milwaukee, Wisconsin 618 Leased(1)
<PAGE>
Approximate
Location Floor Area in Square Feet Owned or Leased
-------- ------------------------- ---------------
8770 S. Howell Avenue
Oak Creek, Wisconsin 1,052 Leased(1)
4689 S. Whitnall Avenue
Milwaukee, Wisconsin 1,159 Leased(1)
7830 W. Good Hope Road
Milwaukee, Wisconsin 523 Leased
1818 W. National Avenue
Milwaukee, Wisconsin 1,188 Leased (1)
8710 Durand Avenue
Sturtevant, Wisconsin 2,400 Owned
851 South 70th Street
West Allis, Wisconsin 31,100 Owned
(1) The Bank leases space from an affiliated entity. See Note 11 to
consolidated financial statements, incorporated herein by reference, for
further information.
Tri City National Bank owns buildings at thirteen locations in Oak Creek,
Milwaukee, Brookfield, Menomonee Falls, West Allis, Hales Corners, Wauwatosa,
Cedarburg and Sturtevant. Approximately 73,338 square feet is leased to third
parties; such square footage is not shown above.
Registrant believes that its bank locations are in buildings that are attractive
and efficient, and adequate for their operations, with sufficient space for
parking and drive-in facilities. Fifteen full-service banking centers are
located in metropolitan Milwaukee food discount centers.
Item 3. LEGAL PROCEEDINGS
There are currently no material legal proceedings pending against Registrant or
its subsidiary bank; however, the bank is involved from time to time in routine
litigation incident to the conduct of its respective businesses.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders through the solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
-------------------------------------------------------------------
The information required by Item 5 is incorporated herein by reference to
Registrant's 1999 Annual Report to Shareholders under the captions entitled
"Market for Corporation's Common Stock and Related Stockholder Matters" (Page
15) and "Selected Financial Data" (Page 14) as to cash dividends paid.
Item 6. SELECTED FINANCIAL DATA
-----------------------
The information required by Item 6 is incorporated herein by reference to
Registrant's 1999 Annual Report to Shareholders under the caption entitled
"Selected Financial Data" (Page 14).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------
The information required by Item 7 is incorporated herein by reference to
Registrant's 1999 Annual Report to Shareholders under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (Pages 5 to 11).
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information required by Item 7A is incorporated herein by reference to
Registrant's 1999 Annual Report to Shareholders under the caption entitled
"Quantitative and Qualitative Disclosures About Market Risk" (Pages 12 to 13).
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------
The information required by Item 8 is incorporated herein by reference to
Registrant's 1999 Annual Report to Shareholders (Pages 16 to 37).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
----------------------------------------------------------------
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
----------------------------------------------
The information required by Item 10 is incorporated herein by reference to
Registrant's definitive Proxy Statement for its annual meeting of shareholders
on June 14, 2000, under the caption entitled "Election of Directors" which
definitive Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b).
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
Registrant's definitive Proxy Statement for its annual meeting of shareholders
on June 14, 2000, under the caption entitled "Executive Compensation" which
definitive Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b).
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by Item 12 is incorporated herein by reference to
Registrant's definitive Proxy Statement for its annual meeting of shareholders
on June 14, 2000, under the caption entitled "Stock Ownership of Certain
Beneficial Owners and Management" which definitive Proxy Statement will be filed
with the Securities and Exchange Commission pursuant to Rule 14a-6(b).
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by Item 13 is incorporated herein by reference to
Registrant's definitive Proxy Statement for its annual meeting of shareholders
on June 14, 2000, under the captions entitled "Election of Directors" and "Loans
and Other Transactions with Management" which definitive Proxy Statement will be
filed with the Securities and Exchange Commission pursuant to Rule 14a-6(b).
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) (1) and (2) Financial statements and financial statement schedules
-----------------------------------------------------------------
The response to this portion of Item 14 is submitted as a separate
section of this report.
(3) Listing of Exhibits
Exhibit 3a-- Articles of incorporation and bylaws
Exhibit 3b-- Registrant's Registration Statement
No. 2-65616 on Form S-1.
Exhibit 13--Annual Report to Shareholders for the year
ended December 31, 1999.
With the exception of the information incorporated
by reference into Items 5, 6, 7, and 8 of this Form
10-K, the 1999 Annual Report to Shareholders is not
deemed filed as part of this report.
Exhibit 21--Subsidiary of Registrant.
Exhibit 24--Consent of Independent Auditors
Exhibit 27--Financial Data Schedule
(b) Reports on Form 8-K
None
(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules--None
<PAGE>
PART IV
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1), (2) and (c)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
CERTAIN EXHIBITS
Year Ended December 31, 1999
TRI CITY BANKSHARES CORPORATION
OAK CREEK, WISCONSIN
<PAGE>
FORM 10-K--ITEM 14(a)(1) and (2)
TRI CITY BANKSHARES CORPORATION
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of independent
auditors of Tri City Bankshares Corporation, included in the annual report of
the Registrant to its stockholders for the year ended December 31, 1999, are
incorporated by reference in Item 8:
Consolidated balance sheets--December 31, 1999 and 1998
Consolidated statements of income--Years ended December 31, 1999, 1998 and
1997 Consolidated statements of stockholders' equity--Years ended December 31,
1999, 1998 and 1997
Consolidated statements of cash flows--Years ended December 31, 1999, 1998 and
1997 Notes to consolidated financial statements--December 31, 1999 Report of
independent auditors
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRI CITY BANKSHARES CORPORATION
BY: /s/ Henry Karbiner, Jr.
- ----------------------------------------
Henry Karbiner, Jr., President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Capacity Date
---- -------- ----
/s/ Henry Karbiner, Jr. 3/08/2000
- ----------------------------- ----------
Henry Karbiner, Jr. Chairman of the Board and
Chief Executive Officer
/s/ Scott A. Wilson 3/08/2000
- ----------------------------- ----------
Scott A. Wilson Secretary and Director
/s/ Thomas W. Vierthaler 3/08/2000
- ----------------------------- ----------
Thomas W. Vierthaler Vice-President and
Comptroller
/s/ Frank J. Bauer 3/08/2000
- ----------------------------- ----------
Frank J. Bauer Director
/s/ Sanford Fedderly 3/08/2000
- ----------------------------- ----------
Sanford Fedderly Director
- ----------------------------- ----------
William Gravitter Director
<PAGE>
/s/ Christ Krantz 3/08/2000
- ----------------------------- ----------
Christ Krantz Director
/s/ William L. Komisar 3/08/2000
- ----------------------------- ----------
William L. Komisar Director
/s/ Rudie L. Lauterbach 3/08/2000
- ----------------------------- ----------
Rudie L. Lauterbach Director
/s/ William P. McGovern 3/08/2000
- ----------------------------- ----------
William P. McGovern Director
/s/ Robert W. Orth 3/08/2000
- ----------------------------- ----------
Robert W. Orth Senior Vice President and
Director
/s/ Ronald K. Puetz 3/08/2000
- ----------------------------- ----------
Ronald K. Puetz Senior Vice President
and Director
/s/ John M. Rupcich 3/08/2000
- ----------------------------- ----------
John M. Rupcich
Director
- ----------------------------- ----------
Agatha T. Ulrich Director
/s/ David A. Ulrich, Jr. 3/28/2000
- ----------------------------- ----------
David A. Ulrich, Jr. Director
/s/ William J. Werry 3/08/2000
- ----------------------------- ----------
William J. Werry Director
<PAGE>
EXHIBIT 3
<PAGE>
EXHIBIT 13
<PAGE>
EXHIBIT 21
SUBSIDIARY OF REGISTRANT
Name Percentage of Shares Owned
Tri City National Bank 100.0%
(Wisconsin Corporation)
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Tri City Bankshares Corporation of our report dated February 18, 2000 with
respect to the consolidated financial statements of Tri City Bankshares
Corporation, included in the Annual Report to Shareholders of Tri City
Bankshares Corporation for the year ended December 31, 1999.
We also consent to the incorporation by reference in the Registration Statement
(Form S-3) of Tri City Bankshares Corporation pertaining to the Automatic
Dividend Reinvestment Plan of Tri City Bankshares Corporation and in the related
Prospectus of our report dated February 18, 2000, with respect to the
consolidated financial statements of Tri City Bankshares Corporation
incorporated by reference in this Annual Report (Form 10-K) for the year ended
December 31, 1999.
/s/ Ernst & Young
Milwaukee, Wisconsin
March 30, 2000
Audited Consolidated Financial Statements
Tri City Bankshares Corporation
Year ended December 31, 1999
<PAGE>
Dear Shareholders,
Even with all the Y2K publicity, it is still somewhat difficult to accept the
fact that we are now entering a brand new century. During the 36 years your bank
existed in the 20th century, it had steady growth in assets, profit and capital.
We concluded 1999 with an all time high of $529,191,000 in assets, a record year
of $7,013,000 in profitability and total capital of $63,125,000 primarily the
result of retained earnings.
During 1999, major legislation was passed by Congress and signed by the
President that enables your company to expand to encompass services such as full
service insurance agency, title insurance agency and expanded customer
investment vehicles. We will pursue these opportunities with our customary
conservative approach.
To better serve and expand our customer base in the City of South Milwaukee, we
have applied to the Office of the Comptroller of the Currency for permission to
open a full service banking facility in that community. We have purchased a
building on Milwaukee Avenue. The location offers excellent commercial
opportunity across from the post office in the downtown area. Pending approval
from the Comptroller, we will refurbish the building and project opening during
the third quarter of this year.
Looking ahead to the 21st century, we must be keenly aware of much new
competition for our customers from nonbanking entities and the ever expanding
horizon of electronic banking. In the past, we have served our customers through
facilities that we call Bricks and Picks, the Bricks being our full service free
standing branches and the Picks being our full service Pick'n Save locations
with seven days a week service. We are now investigating expanding into Bricks,
Picks and Clicks, the Clicks representing e-commerce and on-line banking via the
internet. It has become increasingly evident that our customers will be looking
for full-time banking availability represented by on-line banking 24 hours a
day, 7 days a week.
<PAGE>
In closing, I assure you that your Board of Directors, senior management
officers and employees are totally committed to the continued profitable growth
of your company.
Sincerely,
Henry Karbiner, Jr.
Chairman, President and Chief Executive Officer
Tri City Bankshares Corp.
<PAGE>
Directors and Officers of the Corporation
Directors
Frank J. Bauer President of Frank Bauer Construction Company, Inc.
Sanford Fedderly Retired Registered Pharmacist
William Gravitter President of Hy-View Mobile Home Court, Inc.
Henry Karbiner, Jr. Chairman of the Board, President and Chief Executive
Officer of the Corporation and Chairman of the Board
and President of Tri City National Bank
William L. Komisar Partner, Komisar Brady & Co., LLP, CPA
Christ Krantz Vice President of K.R.K., Inc. (corporation owning Ramada
-Airport Motel, Milwaukee) and partner in Veterans Linen
Supply Company
Rudie L. Lauterbach Accountant, Elm Grove, Wisconsin
William P. McGovern Attorney-at-Law, Milwaukee, Wisconsin
Robert W. Orth Executive Vice President of Tri City National Bank, and
Senior Vice President of the Corporation
Ronald K. Puetz Executive Vice President of Tri City National Bank, and
Senior Vice President of the Corporation
John M. Rupcich Vice President-Real Estate of the Corporation and
President and Director of N.D.C., Inc. and Executive
Vice President of and Director of Mega Marts, Inc.
Agatha T. Ulrich Director of NDC, Inc.
David A. Ulrich, Jr. Vice President and Director of Mega Marts, Inc.
and Vice President and Director of N.D.C., Inc.
William J. Werry Retired Unit President of Tri City National Bank
Scott A. Wilson Senior Vice President and Secretary of the Corporation,
and Executive Vice President and Secretary of Tri City
National Bank
<PAGE>
Directors and Officers of the Corporation (continued)
Officers
Henry Karbiner, Jr. Chairman of the Board, President and
Chief Executive Officer
Robert W. Orth Senior Vice President
Ronald K. Puetz Senior Vice President
Scott A. Wilson Senior Vice President and Secretary
John M. Rupcich Vice President - Real Estate
Thomas W. Vierthaler Vice President and Comptroller
George E. Mikolajczak Vice President - Human Resources
Gary J. Hafemann Assistant Vice President and Auditor
<PAGE>
TRI CITY BANKSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains certain "forward-looking statements," including
statements concerning objectives and future events of performance, and other
statements which are other than historical fact. Factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include, but are not limited to, the following possibilities: (i)
lower than anticipated loan growth due to a variety of factors, including
changes in the interest rate environment and increases in competitive pressures
in the banking and financial services industry; (ii) insufficient reserves for
loan losses; (iii) poorer than expected general economic conditions; (iv)
legislation or regulatory changes which adversely affect the banking industry;
and (v) other unanticipated occurrences.
FINANCIAL CONDITION
Tri City Bankshares Corporation (the Corporation), the parent company of its
wholly owned subsidiary, Tri City National Bank (the Bank), continued to grow in
1999. Total assets increased $18.9 million (3.7%) during 1999 compared to an
increase of $50.6 million (11%) in 1998. Consumer confidence and new business
development activities contributed to an increase in net average assets of $41.8
million (9.0%) in 1999 compared to $29.2 million (6.7%) in 1998. Management
continues to follow a strategy of providing community banking services to
Southeastern Wisconsin by growing our metropolitan branch network.
Cash and cash equivalents of the Corporation decreased $30.7 million (40.3%)
during 1999 compared to an increase of $31.5 million (70.4%) in 1998. The change
is primarily due to a decrease of $29.5 million (91.6%) in federal funds sold.
The usual trend at year-end is an increase in deposits which in turn generates
excess cash which the Corporation invests for the short-term in federal funds
sold.
Investment securities increased $7.5 million (5.6%) during 1999 compared to an
increase of $8.2 million (6.5%) in 1998. In 1999, $25.3 million in investment
securities matured or were called and the Corporation replaced these investment
securities with $33.0 million of new securities. It is the Corporation's policy
to hold all securities to maturity.
<PAGE>
Loan balances increased $41.7 million (15.0%) during 1999 compared to an
increase of $9.8 million (3.6%) in 1998. Management continues to seek new
customers through advertising (with a return to television in 1999), various
promotions and bank officers' personal marketing efforts within the community.
Management's conservative approach to lending and a healthy economy enabled the
Corporation to retain and attract a sound customer base. In 1999, the provision
for loan loss was $225,000. Losses charged against the reserve for loan loss
were $186,000 in 1999 compared to $154,000 in 1998. Management continues to
believe that the reserve for loan loss is adequate to support additional
portfolio growth and provide for any losses which may occur. Nonperforming loans
as of December 31 were $595,000 and $334,000 at December 31, 1999 and 1998,
respectively.
Total deposits of the Corporation increased $9.9 million (2.2%) during 1999
compared to an increase of $50.6 million (12.7%) during 1998. Management
continues to emphasize a strategy to increase retail deposits as a primary
funding source.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
Liquidity is defined as the Corporation's ability to generate adequate amounts
of cash to meet both current and future needs to pay obligations as they mature,
to maintain lending capacity, to provide for planned growth and to provide a
competitive return on investment. Monitoring the correlation between interest
earning assets and interest bearing liabilities is one means of accomplishing
this task. Fluctuations in interest rates can be the main cause for the flow of
funds either into or out of a financial institution. As interest rates rise,
depositors want to obtain the best yield that they can without sacrificing their
liquidity and thus deposits may increase, while a decrease in rates will
stimulate the demand for loans substantially. Management has been diligent in
growing its core deposit base and maintaining a low borrowing position for the
Corporation so that as these fluctuations occur, the Corporation can respond
more readily.
The banking subsidiary of the Corporation has the ability to borrow up to $40
million in federal funds and an additional $32.8 million under reverse
repurchase agreements. Cash needs of the Corporation can also be met through
borrowings from other lenders, if needed. These arrangements are further
discussed in Note 12 of the consolidated financial statements.
Federal law restricts extensions of credit by a bank to its parent bank holding
company and, with certain exceptions, to other affiliates and the amount of
dividends the Corporation's subsidiary may pay to the parent bank holding
company. Note 13 to the consolidated financial statements discusses the
application of these limitations to the Corporation and its subsidiary bank.
<PAGE>
In addition, the repayment of loans and scheduled maturities of marketable
investment securities are significant sources of liquidity. Securities maturing
in one year or less amounted to $6.7 million at December 31, 1999, representing
4.7% of total investment securities. The Corporation has not, in the past,
relied on sales of investment securities to meet its liquidity needs, and
management does not intent to do so in the future.
CAPITAL RESOURCES
During the first quarter of 1999, the Corporation completed construction of a
new facility for its operations center. The facility was developed to provide
additional space for the Corporation's check processing operations and new
optical system which will enhance the proof operation and enable more timely and
efficient processing. The cost of this facility and equipment was $2.2 million
and was funded entirely by the Corporation's banking subsidiary.
A new branch was opened in Sturtevant, Wisconsin during the second quarter of
1999 to serve the Corporation's customers who live in the Kenosha/Racine area.
An existing building was purchased and renovated to enhance its appearance and
efficiency. The Corporation's banking facility in Oak Creek was also remodeled
to update its appearance and floor plan. The cost of these renovations amounted
to $1.1 million and was funded entirely by the Corporation's banking subsidiary.
The OCC has issued guidelines, which impose certain risk-based capital and
leverage standards upon national banks. These guidelines, as well as the capital
requirements of bank regulators, are discussed in Note 8 to the consolidated
financial statements. Failure to meet applicable capital guidelines could
subject a national bank to a variety of enforcement remedies available to the
federal regulatory authorities.
The Corporation continues to exceeds the minimum capital ratios. It is the
Corporation's philosophy to avoid those categories of assets classified by the
capital requirements as having higher credit risk, and to avoid highly leveraged
or foreign loans. The Corporation's banking subsidiary believes it will continue
to exceed the "risk-based" capital requirements and continue to meet regulatory
definitions of "well capitalized."
RESULTS OF OPERATIONS
1999 vs. 1998
-------------
Net income for the Corporation increased $43,000 (0.6%) during 1999 compared to
an increase of $478,000 (7.4%) during 1998. The Corporation was able to increase
net income despite increased expenses associated with the banking subsidiary's
conversion of data processing providers in November 1998, increased costs
related to the new operations center and the expansion of the branch network in
Sturtevant, Wisconsin.
<PAGE>
Interest and fees on loans have increased $318,000 (1.2%) in 1999 compared to an
increase of $919,000 (3.7%) in 1998. This increase was primarily due to the
increase in average loans outstanding and partially offset by a decrease in
average yields. Most of this growth occurred during the fourth quarter of 1999.
Management has been diligent in their efforts to attract new customers, make new
loans in the community and maintain portfolio credit quality. Their conservative
review of all loan applications has enabled the Corporation to experience a very
low nonperforming loan ratio and charge-off history.
Interest income on investment securities, including federal funds sold,
decreased $70,000 (0.9%) during 1999 compared to an increase of $527,800 (7.2%)
during 1998. The decline resulted primarily from decreases in the average
balance in federal funds sold and yields on other investment securities offset
by increases in the average balance of other investment securities. The
Corporation invested funds primarily in municipal securities in order to
maximize after-tax yields.
There was little change in other income while other expenses increased $1.2
million (6.0%) in 1999 compared to an increase of $962,000 (5.2%) in 1998. The
majority of the increase is due to increased data processing charges stemming
from the conversion to a new processor in November of 1998. Charges for data
processing increased $431,000 (66.5%) for the year. This increase was necessary
in order to upgrade all of the Corporation's systems to be Year 2000 compliant
and to allow the bank to make operational improvements.
Interest expense on deposits and short-term borrowings decreased $208,000 (1.9%)
in 1999 compared to an increase of $513,000 (4.8%) in 1998. The average yield on
saving and time deposits was 3.38% in 1999 compared to an average yield of 3.77%
in 1998.
Occupancy expense increased in 1999 $415,000 (16.7%) due to the additional
facilities placed in operation for our operations center and a new branch office
in Sturtevant, Wisconsin. The banking facility was opened in order to better
serve our customers from this location and the surrounding area.
Management is prepared to lead the Corporation into the next millennium and to
continue to prosper and grow. Management is confident that the Corporation's
family of employees will help to ensure its continued growth. The effective tax
rate for the Corporation was 22.6% in 1999 and 25.6% in 1998.
RESULTS OF OPERATIONS
1998 vs. 1997
Net income for the Corporation increased $478,000 (7.4%) during 1998 compared to
an increase of $685,000 (11.8%) during 1997. Interest income and fees on loans,
investment security interest income and interest on federal funds sold were the
principal components of the increase.
<PAGE>
Interest and fees for the Corporation increased $919,000 (3.7%) in 1998 compared
to an increase of $1.9 million (8.4%) in 1997. Although loan balances have
increased during the year, rates have declined slightly. Some loans have also
been repaid and new loans replacing these as well as the repricing of cash flow
generated from scheduled amortization have resulted in a decline of 20 basis
points in the overall loan portfolio. Management's conservative policies have
kept the Corporation from experiencing large charge-offs or a high percentage of
nonperforming loans. A quality loan portfolio has been maintained while still
providing competitive products to offer in the community. The Corporation's
nonaccrual loans were $334,000 as of December 31, 1998, compared to no
nonaccrual loans as of December 31, 1997.
Investment securities interest income, including federal funds sold, increased
$527,800 (7.2%) during 1998 compared to an increase of $84,000 (1.2%) during
1997. During 1998, $46.7 million of investment securities matured or were called
including $3.0 million, which were classified as available-for-sale. However,
replacement securities are offering a lower yield. The goal of management is to
acquire investments, which will give the Corporation a high yield but will not
expose it to the potential high risk, which accompanies a higher rate of return.
Interest expense on deposits increased $696,000 (6.8%) in 1998 compared to a
decrease of $104,000 (1.0%) in 1997, primarily due to the large increase in
deposit balances during 1998. Since the Corporation has had excess funds to
invest for much of 1998, short-term borrowing interest decreased $182,000
(49.9%) compared to an increase of $116,000 (46.3%) in 1997.
Other income increased $504,000 (7.9%) in 1998 compared to an increase of
$482,000 (8.1%) during 1997.
Other expenses have increased $962,000 (5.2%) in 1998 compared to an increase of
$1.0 million (5.9%) in 1997. Due to the new facility for the Corporation's
operations center, occupancy expenses are expected to increase substantially
during 1999.
The effective tax rate for the Corporation is 25.6% in 1998 and 27.1% in 1997.
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of a financial institution are monetary
in nature. Therefore, the effects of inflation on financial institutions differ
greatly from most commercial and industrial companies that have significant
investments in fixed assets or inventories. The growth of total assets in the
banking industry caused by inflation results in the need to increase equity
capital at higher than normal rates in order to maintain an appropriate
equity-to-assets ratio. The Corporation's management recognizes the need to both
control asset growth and maintain a reasonable dividend policy in order to
promote the adequate internal growth of capital. Another significant effect of
inflation is on other expenses, which tend to rise during periods of general
inflation.
<PAGE>
Management believes the most significant impact on inflation and changing prices
on financial results is the Corporation's ability to react to changes in
interest rates. Management attempts to maintain a reasonably balanced position
between interest-sensitive assets and liabilities in order to protect against
wide interest rate fluctuations.
YEAR 2000
The Corporation has been engaged in the process of addressing a potential
problem that confronted all users of automated information systems, including
personal computers, generally referred to as the Year 2000 Issue. The issue is
the result of computer systems processing transactions based upon two digits
representing the year of the transaction rather than four full digits (e.g. 99
for 1999).
During 1999, the Corporation completed all renovations, testing and the
development of detailed contingency plans to address potential risks in the
event of Year 2000 failures. To date, the Corporation experienced no significant
problems relating to the century turn transition.
Although considered unlikely, unanticipated problems in the Corporation's core
business processes, including problems associated with noncompliant third
parties and disruptions to the economy in general, could still occur despite
efforts to date to remediate affected systems and develop contingency plans.
Management will continue to monitor all business processes, including
interaction with the Corporation's customers, vendors and other third parties,
throughout 2000 to address any issues and ensure all processes continue to
function properly.
All costs incurred to address the Year 2000 Issue have had no material impact on
the Company's financial condition, results of operations or liquidity. There are
no anticipated material expenditures expected to be incurred in the future
related to the Year 2000 Issue.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of the Corporation's transactions are
denominated in U.S. dollars with no specific foreign exchange exposure.
Interest rate risk (IRR) is the exposure of a banking organization's financial
condition to adverse movements in interest rates. Accepting this risk can be an
important source of profitability and stockholder value; however, excessive
levels of IRR could pose a significant threat to the Corporation's earnings and
capital base. Accordingly, effective risk management that maintains IRR at
prudent levels is essential to the Corporation's safety and soundness.
<PAGE>
When assessing IRR, the Corporation seeks to ensure that appropriate policies,
procedures, management information systems and internal controls are in place to
maintain IRR at prudent levels with consistency and continuity. Evaluating the
quantitative level of IRR exposure requires the Corporation to assess the
existing and potential future effects of changes in interest rates on its
consolidated financial condition, including capital adequacy, earnings,
liquidity and, where appropriate, asset quality.
Financial institutions derive their income primarily from the excess of interest
collected over interest paid. The rates of interest an institution earns on its
assets and owes on its liabilities generally are established contractually for a
period of time. Since market interest rates change over time, an institution is
exposed to lower profit margins (or losses) if it cannot adapt to interest rate
changes. For example, assume that an institution's assets carry intermediate- or
long-term fixed rates and that those assets are funded with short-term
liabilities. If market interest rates rise by the time the short-term
liabilities must be refinanced, the increase in the institution's interest
expense on its liabilities may not be sufficiently offset if assets continue to
earn at the long-term fixed rates. Accordingly, an institution's profits could
decrease on existing assets because the institution will either have lower net
interest income or, possibly, net interest expense. Similar risks exist when
assets are subject to contractual interest rate ceilings, or rate-sensitive
assets are funded by longer-term, fixed-rate liabilities in a decreasing rate
environment.
Several ways an institution can manage IRR include: selling existing assets or
repaying certain liabilities; matching repricing periods for new assets and
liabilities, for example, by shortening terms of new loans or investments; and
hedging existing assets, liabilities or anticipated transactions. An institution
might also invest in more complex financial instruments intended to hedge or
otherwise change IRR. Interest rate swaps, futures contracts, options on futures
and other such derivative financial instruments often are used for this purpose.
Because these instruments are sensitive to interest rate changes, they require
management expertise to be effective. The Corporation has not purchased
derivative financial instruments in the past and does not presently intend to
purchase such instruments.
Financial institutions are also subject to prepayment risk in falling rate
environments. For example, mortgage loans and other financial assets may be
prepaid by a debtor so that the debtor may refund its obligations at new, lower
rates. Prepayments of assets carrying higher rates reduce the Corporation's
interest income and overall asset yields. Certain portions of an institution's
liabilities may be short-term or due on demand, while most of its assets may be
invested in long-term loans or investments. Accordingly, the Corporation seeks
to have in place sources of cash to meet short-term demands. These funds can be
obtained by increasing deposits, borrowing or selling assets. Also, short-term
borrowings provide additional sources of liquidity for the Corporation.
The following tables summarize interest rate sensitive assets and liabilities by
year of maturity as of December 31, 1999 and 1998.
<PAGE>
Tri City Bankshares Corporation
Quantitative Disclosures of Market Risk
December 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
Principal Amount Maturing in Fair Value
------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest
rate loans $ 85,681 $ 64,887 $ 65,515 $ 30,845 $ 19,071 $ 10,097 $276,096 $270,271
Average interest rate 8.25% 8.15% 7.97% 7.60% 7.59% 7.44% 8.01%
Variable interest
rate loans $ 21,365 $ 3,921 $ 2,355 $ 733 $ 2,095 $ 12,334 $ 42,803 $ 41,090
Average interest rate 8.65% 8.53% 8.65% 8.46% 8.53% 7.99% 8.44%
Fixed interest rate
securities $ 6,731 $ 13,209 $ 21,455 $ 27,234 $ 31,095 $ 42,298 $142,022 $139,238
Average interest rate 5.57% 4.55% 4.91% 5.20% 5.33% 5.23% 5.15%
Other interest
bearing assets $ 2,700 $ 2,700 $ 2,700
Average interest rate 4.67% 4.67%
Rate sensitive liabilities:
Savings and interest-
bearing checking $211,699 $211,699 $211,699
Average interest rate 2.39% 2.39%
Time deposits $ 88,638 $ 17,558 $ 4,294 $ 5,016 $ 4,185 $ - $119,691 $119,798
Average interest rate 5.07% 5.25% 5.81% 5.77% 5.17% 0.00% 5.16%
Variable interest rate
borrowings $ 4,579 $ 4,579 $ 4,579
Average interest rate 5.05% 5.05%
rate
</TABLE>
<PAGE>
Tri City Bankshares Corporation
Quantitative Disclosures of Market Risk
December 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Principal Amount Maturing in Fair Value
------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total 12/31/98
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest rate
loans $ 88,496 $ 57,666 $ 50,617 $ 9,975 $ 20,481 $ 6,992 $234,227 $233,981
Average interest rate 8.57% 8.72% 8.37% 8.47% 7.61% 7.89% 8.46%
Variable interest rate
loans $ 19,869 $ 7,589 $ 2,197 $ 598 $ 605 $ 12,099 $ 42,957 $ 42,913
Average interest rate 7.97% 8.72% 8.21% 8.12% 8.77% 7.86% 8.10%
Fixed interest rate
securities $ 7,000 $ 8,830 $ 14,975 $ 16,103 $ 23,283 $ 64,347 $134,538 $136,420
Average interest rate 6.44% 6.90% 6.63% 6.69% 6.54% 6.63% 6.63%
Other interest-bearing
assets $ 32,200 $ 32,200 $ 32,200
Average interest rate 5.26% 5.26%
Rate sensitive liabilities:
Savings and interest-
bearing checking $204,969 $204,969 $204,969
Average interest rate 2.69% 2.69%
Time deposits $ 84,353 $ 13,034 $ 4,319 $ 3,281 $ 6,459 $ - $111,446 $112,116
Average interest rate 5.27% 5.88% 5.95% 6.30% 5.83% 0.00% 5.43%
Variable interest
rate borrowings $ 827 $ 827 $ 827
Average interest rate 6.12% 6.12%
</TABLE>
<PAGE>
Tri City Bankshares Corporation
Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $33,788,288 $33,540,240 $32,109,169 $30,114,579 $27,724,625 $24,503,080
Total interest expense 10,962,687 11,170,653 10,657,307 10,645,630 9,468,149 6,859,209
Net interest income 22,825,601 22,369,587 21,451,862 19,468,949 18,256,476 17,643,871
Provision for loan losses 225,000 600,000 600,000 300,000 248,139 375,000
Net interest income after
provision for loan losses 22,600,601 21,769,587 20,851,862 19,168,949 18,008,337 17,268,871
Income before income taxes 9,066,001 9,370,239 8,910,197 7,761,293 7,509,719 6,769,767
Net income 7,013,001 6,970,239 6,492,197 5,807,293 5,350,578 4,876,814
Net income per share 2.77 2.77 2.60 2.34 2.17 2.04
Cash dividends declared
per share 1.20 1.00 .85 .70 .50 .40
Average daily balances: (In Thousands)
Total assets $ 507,232 $ 465,437 $ 436,204 $ 410,975 $ 371,795 $ 340,502
Total net loans 293,541 269,773 257,907 237,524 220,969 197,540
Total investment securities 147,801 126,641 120,792 115,810 105,758 96,810
Total deposits 443,842 404,305 376,093 358,296 324,469 294,568
Total stockholders' equity 60,144 55,122 50,266 45,677 41,532 36,051
stockholders'
equity
</TABLE>
<PAGE>
Tri City Bankshares Corporation
Market for Corporation's Common Stock
and Related Stockholder Matters
The Corporation's common stock is not traded on any exchange or in the
over-the-counter market. The price ranges reflected in the following table show
sales prices in isolated sales of which the Corporation has knowledge.
1999 1998
-------------------------------------
High Low High Low
-------------------------------------
Price range:
First quarter $34.30 $33.75 $30.90 $30.40
Second quarter 35.10 34.55 31.75 31.15
Third quarter 36.05 35.45 32.60 32.00
Fourth quarter 36.95 36.35 33.45 32.90
As of December 31, 1999, the number of holders of record of the Corporation's
common stock was 753.
The Corporation declared four quarterly cash dividends in 1999 in the amount of
$0.30 per share. These dividends were declared on January 7, April 14, July 14
and October 13, payable on January 22, April 26, July 20 and October 19,
respectively. Quarterly dividends of $0.25 per share were declared during each
of the four quarters of 1998.
The Corporation is not party to any loan agreement, indenture or other agreement
which restricts its ability to pay dividends; however, the Wisconsin Business
Corporation Law authorizes directors to declare and pay cash dividends only out
of the Corporation's unreserved and unrestricted earned surplus. See Note 13 to
the consolidated financial statements for restrictions imposed by regulatory
agencies upon the subsidiary bank's ability to transfer funds to the parent
corporation.
<PAGE>
Tri City Bankshares Corporation
Consolidated Balance Sheets
See accompanying notes.
December 31
1999 1998
----------------------------
Assets
Cash and due from banks $ 42,781,918 $ 44,001,647
Federal funds sold 2,700,000 32,200,000
----------------------------
Cash and cash equivalents 45,481,918 76,201,647
Investment securities held-to-maturity
(fair value of $139,237,806--1999 and 142,022,068 134,537,963
$136,420,200--1998)
Loans 318,899,435 277,184,364
Less allowance for loan losses (4,340,357) (4,244,745)
----------------------------
--------------
Net loans 314,559,078 272,939,619
Premises and equipment 20,824,179 19,864,590
Other assets 6,303,572 6,708,412
----------------------------
$529,190,815 $510,252,231
============================
Liabilities and stockholders' equity
Deposits:
Noninterest-bearing $128,079,686 $133,120,719
Interest-bearing - over $100,000 26,092,149 28,247,266
Interest-bearing - other 305,298,102 288,167,417
----------------------------
Total deposits 459,469,937 449,535,402
Short-term borrowings 4,579,060 827,355
Other liabilities 2,016,985 1,371,614
----------------------------
--------------
Total liabilities 466,065,982 451,734,371
Stockholders' equity:
Common stock, $1 par value:
Authorized - 5,000,000 shares
Issued and outstanding (1999--2,538,232
shares; 1998--2,520,205 shares) 2,538,232 2,520,205
Additional paid-in capital 10,335,369 9,726,974
Retained earnings 50,251,232 46,270,681
--------------
---------------
Total stockholders' equity 63,124,833 58,517,860
----------------------------
$529,190,815 $510,252,231
============================
<PAGE>
Tri City Bankshares Corporation
Consolidated Statements of Income
See accompanying notes.
Year ended December 31
1999 1998 1997
---------------------------------------
Interest income:
Loans, including fees $25,911,622 $25,593,267 $24,673,957
Investment securities:
Taxable 3,891,009 3,855,225 4,359,562
Exempt from federal income tax 3,782,237 3,268,120 2,735,986
Federal funds sold 203,420 823,628 339,664
---------------------------------------
Total interest income 33,788,288 33,540,240 32,109,169
Interest expense:
Deposits 10,503,566 10,987,242 10,291,509
Short-term borrowings 459,121 183,411 365,798
---------------------------------------
Total interest expense 10,962,687 11,170,653 10,657,307
---------------------------------------
Net interest income 22,825,601 22,369,587 21,451,862
Provision for loan losses 225,000 600,000 600,000
---------------------------------------
Net interest income after 22,600,601 21,769,587 20,851,862
provision for loan losses
Other income:
Service charges 3,301,439 3,440,023 3,486,469
Rental income 971,584 958,866 890,894
Gain on sale of loans 35,451 98,719 44,904
Other 2,640,375 2,428,912 1,999,811
---------------------------------------
Total other income 6,948,849 6,926,520 6,422,078
Other expenses:
Salaries and employee benefits 10,818,947 10,751,993 10,238,765
Occupancy 2,897,760 2,483,067 2,495,224
Equipment 1,353,479 1,390,623 1,226,110
Data processing 1,079,788 648,559 623,169
Advertising and promotional 621,221 430,338 474,328
Regulatory agency assessments 161,081 150,268 145,350
Office supplies 666,126 609,380 498,989
Other 2,885,047 2,861,640 2,661,808
---------------------------------------
Total other expenses 20,483,449 19,325,868 18,363,743
---------------------------------------
Income before income taxes 9,066,001 9,370,239 8,910,197
Income taxes 2,053,000 2,400,000 2,418,000
---------------------------------------
Net income $ 7,013,001 $ 6,970,239 $ 6,492,197
=======================================
Net income per share $ 2.77 $ 2.77 $ 2.60
=======================================
Average shares outstanding 2,530,520 2,513,003 2,496,050
=======================================
<PAGE>
Tri City Bankshares Corporation
Consolidated Statements of Stockholders' Equity
See accompanying notes.
Accumulated
Common Additional Retained Other
Stock Paid-In Earnings Comprehensive Total
Capital Income
---------------------------------------------------------
Balances at
January 1, 1997 $2,486,098 $8,750,861 $37,437,024 $ 37,679 $48,711,662
Net income - - 6,492,197 - 6,492,197
Change in net
unrealized loss
on investment
securities
available-for-sale
(net of tax) - - - (63,190) (63,190)
-----------
Comprehensive income 6,429,007
-----------
Cash dividends
declared--$.85 per
share - - (2,118,973) - (2,118,973)
Common stock
issued under
dividend
reinvestment
plan--17,029 shares 17,029 459,214 - - 476,243
Common stock
fractional shares
redeemed (9) (249) - - (258)
------------------------------------------------------------
Balances at
December 31, 1997 2,503,118 9,209,826 41,810,248 (25,511) 53,497,681
Net income - - 6,970,239 - 6,970,239
Change in net
unrealized loss on
investment
securities
available-for-sale
(net of tax) - - - 25,511 25,511
-----------
Comprehensive income 6,995,750
-----------
Cash dividends
declared--$1.00 per
share - - (2,509,806) - (2,509,806)
Common stock
issued under
dividend
reinvestment
plan--17,103 shares 17,103 517,642 - - 534,745
Common stock
fractional shares
redeemed (16) (494) - - (510)
------------------------------------------------------------
Balances at
December 31, 1998 2,520,205 9,726,974 46,270,681 - 58,517,860
Net income - - 7,013,001 - 7,013,001
Cash dividends
declared--$1.20
per share - - (3,032,450) - (3,032,450)
Common stock
issued under
dividend
reinvestment
plan--
18,039 shares 18,039 608,790 - - 626,829
Common stock
fractional shares
redeemed (12) (395) - - (407)
------------------------------------------------------------
Balances at
December 31, 1999 $2,538,232 $10,335,369 $50,251,232 $ - $63,124,833
============================================================
<PAGE>
Tri City Bankshares Corporation
Consolidated Statements of Cash Flows
See accompanying notes.
Year ended December 31
1999 1998 1997
--------------------------------------------
OPERATING ACTIVITIES
Net income $ 7,013,001 $ 6,970,239 $ 6,492,197
Adjustments to reconcile net
income to net cash provided
by operating activities:
Proceeds from sale of loans
held for sale 13,812,028 27,184,355 11,433,205
Origination of loans held for
sale (13,812,028) (27,184,355) (11,433,205)
Provision for loan losses 225,000 600,000 600,000
Provision for depreciation 1,957,472 1,703,716 1,587,843
Amortization of premiums and
accretion of discounts on
investment securities 215,260 (87,426) 154,227
Undistributed earnings of
affiliate (94,346) (107,708) (99,620)
Decrease (increase) in interest
receivable (7,633) (168,846) 83,099
Increase (decrease) in interest
payable (329) 37,994 76,843
Other 1,152,519 (53,650) (599,523)
--------------------------------------------
Net cash provided by operating
activities 10,460,944 8,894,319 8,295,066
INVESTING ACTIVITIES
Proceeds from repayment, calls
and maturities of investments
available for sale - 3,000,000 7,010,082
Proceeds from repayment, calls
and maturities of investment
securities held to maturity 25,312,273 43,663,386 21,133,878
Purchases of investment securities
held to maturity (33,011,638) (54,714,850) (29,282,938)
Net increase in loans (41,844,459) (9,640,727) (13,756,897)
Net purchases of premises and
equipment (2,917,061) (3,441,381) (796,670)
--------------------------------------------
Net cash used by investing
activities (52,460,885) (21,133,572) (15,692,545)
FINANCING ACTIVITIES
Sale of common stock 626,422 534,235 475,985
Net increase in deposits 9,934,535 50,592,032 17,929,693
Net increase (decrease) in
short-term borrowings 3,751,705 (4,883,449) 310,847
Cash dividends (3,032,450) (2,509,806) (2,118,973)
--------------------------------------------
Net cash provided by financing
activities 11,280,212 43,733,012 16,597,552
--------------------------------------------
Increase (decrease) in cash and
cash equivalents (30,719,729) 31,493,759 9,200,073
Cash and cash equivalents at
beginning of year 76,201,647 44,707,888 35,507,815
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 45,481,918 $ 76,201,647 $ 44,707,888
============================================
Supplementary information:
Interest paid $ 10,964,981 $ 11,144,358 $ 10,588,438
Income taxes paid 1,395,000 2,445,000 2,440,000
<PAGE>
Tri City Bankshares Corporation
Notes to Consolidated Financial Statements
December 31, 1999
1. ACCOUNTING POLICIES
The accounting policies followed by Tri City Bankshares Corporation (the
Corporation) and the methods of applying those principles which materially
affect the determination of its financial position, cash flows or results of
operations are summarized below.
ORGANIZATION
Tri City Bankshares Corporation and its wholly owned subsidiary, Tri City
National Bank (the Bank), provide banking services to domestic markets,
primarily in the metropolitan Milwaukee, Wisconsin, area. The Corporation and
its subsidiary are subject to competition from other financial institutions. The
Corporation and its subsidiary are also subject to the regulations of certain
federal agencies and undergo periodic examinations by these regulatory
authorities.
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its subsidiary. All significant intercompany balances and transactions have
been eliminated. The Corporation's investment in an unconsolidated affiliated
bank (see Note 4) is recorded using the equity method of accounting.
USE OF ESTIMATES
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the amounts of assets and liabilities
as of the date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, interest-bearing deposits and federal
funds sold.
INVESTMENT SECURITIES
Debt securities are classified as held-to-maturity and carried at amortized cost
if management has the intent and ability to hold the securities to maturity.
Securities not classified as held-to-maturity are designated as
available-for-sale and carried at fair value, with unrealized gains and losses
net of income taxes, reflected in stockholders' equity.
<PAGE>
Tri City Bankshares Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
Interest and dividends are included in interest income from the related
securities as earned. Realized gains and losses are computed on a specific
identification basis and declines in value judged to be other than temporary are
included in gains (losses) on sale of securities.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation. The
cost of premises and equipment is depreciated using the straight-line method
over the estimated useful lives of the assets. Repairs and maintenance costs are
expensed as incurred.
INTEREST ON LOANS
Interest on loans is computed on a daily basis based on the principal amount
outstanding. The accrual of interest income is discontinued when a loan becomes
90 days past due as to principal or interest. Management may elect to continue
the accrual of interest when the estimated fair value of collateral is
sufficient to cover the principal balance and accrued interest.
LOAN FEES AND RELATED COSTS
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and the net amounts are being amortized as an adjustment of
the related loan's yield. The Corporation is amortizing these amounts using the
level-yield method over the contractual life of the related loans. The net
deferred amounts related to loans sold are recognized as income at the time of
sale. Fees related to stand-by letters of credit are recognized over the
commitment period.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is composed of specific and general valuation
allowances. The Corporation establishes specific valuation allowances on
income-producing real estate loans considered impaired. A loan is considered
impaired (and a specific valuation allowance established for an amount equal to
the impairment) when the carrying amount of the loan exceeds the present value
of the expected future cash flows, discounted at the loans original effective
interest rate, or the fair value of the underlying collateral. General valuation
allowances are based on an evaluation of the various risk components that are
inherent in the credit portfolio. The risk components that are evaluated include
past loan
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
loss experience; the level of nonperforming and classified assets; current
economic conditions; volume, growth and composition of the loan portfolio;
adverse situations that may affect the borrower's ability to repay; the
estimated value of any underlying collateral; peer group comparisons; regulatory
guidance; and other relevant factors.
The allowance is increased by provisions charged to earnings and reduced by
charge-offs, net of recoveries. Management may transfer reserves between
specific and general valuation allowances as considered necessary. The adequacy
of the allowance for loan losses is approved quarterly by the Corporations board
of directors. The allowance reflects management's best estimate of the reserves
needed to provide for the impairment of income-producing real estate loans, as
well as other credit risks of the Banks and is based on a risk model developed
and implemented by management and approved by the Corporation's board of
directors.
A substantial portion of the Bank's loans are to customers located in
southeastern Wisconsin. Accordingly, the ultimate collectibility of a
substantial portion of the Bank's loan portfolio is susceptible to changes in
market conditions in that area.
INCOME TAXES
The Corporation and its subsidiary file a consolidated federal income tax
return. The subsidiary provides for income taxes on a separate-return basis and
remits to the Corporation amounts determined to be currently payable.
The Corporation accounts for income taxes using the liability method. Deferred
income tax assets and liabilities are adjusted regularly to amounts estimated to
be receivable or payable based on current tax law and the Corporation's tax
status.
PER SHARE DATA
Basic earnings per share are based on the weighted average number of shares of
common stock outstanding during each year. The Company has no potentially
dilutive securities outstanding during the three years ended December 31, 1999.
The resulting number of shares used in computing basic earnings per share is
2,530,520, 2,513,003 and 2,496,050 for the years ended December 31, 1999, 1998
and 1997, respectively.
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
Interim Financial Data
The interim financial data (see Note 17) is unaudited; however, in management's
opinion, the interim data includes all adjustments, consisting only of normal,
recurring adjustments necessary for a fair presentation of results for the
interim periods.
SEGMENT REPORTING
The Corporation has determined that it has one reportable segment - commercial
banking. The Corporation offers the following products and services to external
customers: deposits and loans; and, to a much lesser extent, leases space in
branch facilities to third parties. Revenues for each of these products and
services are disclosed in the consolidated statements of income.
2. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The subsidiary bank is required to maintain non-interest-earning reserve
balances with the Federal Reserve Bank or in vault cash. The amount of the
reserve requirement as of December 31, 1999, was approximately $12,895,000.
3. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investments in debt securities
were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------
At December 31, 1999:
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government agencies $ 56,445,675 $ 8,380 $ 1,788,910 $ 54,665,145
Obligations of states and
political subdivisions 85,576,393 175,716 1,179,448 84,572,661
----------------------------------------------------
$142,022,068 $ 184,096 $ 2,968,358 $139,237,806
====================================================
At December 31, 1998:
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government agencies $ 56,947,707 $ 410,247 $ 72,501 $ 57,285,453
Obligations of states and
political subdivisions 77,590,256 1,616,796 72,305 79,134,747
----------------------------------------------------
$134,537,963 $2,027,043 $ 144,806 $136,420,200
====================================================
<PAGE>
3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of debt securities at December 31,
1999, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers or issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
--------------------------
--------------------------
Due in one year or less $ 6,730,915 $ 6,744,476
Due after one year through five years 92,992,785 91,360,246
Due after five years through ten years 42,298,368 41,133,084
--------------------------
$142,022,068 $139,237,806
==========================
There were no sales of securities in 1999, 1998 or 1997. At December 31, 1999,
investment securities with a carrying value of $15,486,000 were pledged as
collateral to secure public funds.
4. INVESTMENT IN AFFILIATED BANK
As of December 31, 1999 and 1998, the Corporation owns 23.54% of the common
stock of the First National Bank of Eagle River (First National Bank). This
investment is included in other assets and is accounted for using the equity
method. On January 20, 2000, the Corporation disposed of its investment in First
National Bank.
Summarized unaudited financial information for First National Bank was as
follows:
As of and for the year
ended
December 31
1999 1998
--------------------------
Total assets $91,103,000 $86,468,000
Total deposits 82,888,000 76,316,000
Stockholders' equity 7,587,000 7,819,000
Net income 705,000 754,000
<PAGE>
5. LOANS
Loan balances classified by type were as follows:
December 31
1999 1998
--------------------------
Commercial $ 26,954,000 $ 13,730,000
Real estate - construction 16,503,000 16,358,000
Real estate - mortgage:
Single family 131,902,000 114,570,000
Multi family 10,971,000 9,136,000
Nonresidential 105,084,000 91,675,000
Installment 27,485,000 31,715,000
--------------------------
$318,899,000 $277,184,000
==========================
In the ordinary course of business, the Bank grants loans to related parties,
which include certain directors and officers of the Corporation, and entities in
which such persons are principal shareholders. These loans are made at terms
which do not vary from terms that would have been obtained if the transactions
had been with unrelated parties and do not involve more than normal risk of
collectibility. Loans outstanding at December 31, 1999 and 1998, to such related
parties approximated $1,512,000 and $1,303000, respectively. During 1999,
$911,000 of new loans were made and repayments totaled $702,000. These amounts
have been restated to reflect changes in directors and officers of the
Corporation.
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for each of the three years in the
period ended December 31, 1999, were as follows:
1999 1998 1997
--------------------------------------
Balance at beginning of year $ 4,244,745 $ 3,500,050 $ 3,010,230
Provision for loan losses 225,000 600,000 600,000
Loans charged off (186,000) (154,513) (170,014)
Recoveries on loans charged off 56,612 299,208 59,834
--------------------------------------
Balance at end of year $ 4,340,357 $ 4,244,745 $ 3,500,050
======================================
Nonaccrual loans totaled approximately $595,000 and $334,000 at December 31,
1999 and 1998, respectively.
<PAGE>
7. PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following:
December 31
1999 1998
---------------------------
Land $ 4,779,602 $ 4,772,156
Buildings and leasehold improvements 20,735,023 19,092,071
Furniture and equipment 8,404,936 9,501,886
---------------------------
33,919,561 33,366,113
Less accumulated depreciation (13,095,382) (13,501,523)
---------------------------
$ 20,824,179 $ 19,864,590
===========================
8. REGULATORY CAPITAL
The Corporation and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Corporation and
the Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1999, that both the Corporation and the
Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Office of the
Comptroller of Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
Tier I leverage ratios of 10%, 6% and 5%, respectively. There are no conditions
or events since that notification that management believes have changed the
institution's category.
<PAGE>
8. REGULATORY CAPITAL (CONTINUED)
The actual and required capital amounts and ratios were as follows:
For Capital
Actual Adequacy Purposes
------------------------------------------
Amount Ratio Amount Ratio
------------------------------------------
As of December 31, 1999
Total Capital
(to Risk Weighted Assets):
Consolidated $67,457,000 19.47% $27,724,000 8.00%
Tri City Bank 64,615,000 18.77 27,533,000 8.00
Tier I Capital
(to Risk Weighted Assets):
Consolidated 63,125,000 18.22 13,862,000 4.00
Tri City Bank 60,312,000 17.52 13,767,000 4.00
Tier I Capital - Leverage ratio
(to Average Assets):
Consolidated 63,125,000 12.12 20,830,000 4.00
Tri City Bank 60,312,000 11.63 20,736,000 4.00
As of December 31, 1998
Total Capital
(to Risk Weighted Assets):
Consolidated $62,395,000 20.14% $24,783,000 8.00%
Tri City Bank 59,720,000 19.42 24,602,000 8.00
Tier I Capital
(to Risk Weighted Assets):
Consolidated 58,518,000 18.89 12,391,000 4.00
Tri City Bank 55,871,000 18.17 12,301,000 4.00
Tier I Capital - Leverage ratio
(to Average Assets):
Consolidated 58,518,000 11.97 19,553,000 4.00
Tri City Bank 55,871,000 11.48 19,466,000 4.00
<PAGE>
9. EMPLOYEE BENEFIT PLAN
The Corporation has a contributory defined-contribution 401(k) plan. This plan
covers all employees who have attained the age of 21 and completed one year of
service. Participants may contribute a portion of their compensation (up to IRS
limits) to the plan. The Corporation may make regular and matching contributions
to the plan each year. In 1999, 1998 and 1997, the Corporation provided a
dollar-for-dollar match of employee contributions up to 5%. Participants direct
the investment of their contributions into one or more investment options. The
Corporation recorded expense of $289,475, $244,745 and $219,161 for 1999, 1998
and 1997, respectively.
10. INCOME TAXES
The significant components of income tax expense for each of the three years in
the period ended December 31, 1999, were:
1999 1998 1997
---------------------------------------
Federal $ 1,798,000 $ 2,127,000 $ 2,150,000
State 255,000 273,000 268,000
---------------------------------------
$ 2,053,000 $ 2,400,000 $ 2,418,000
=======================================
Current $ 2,201,000 $ 3,096,000 $ 2,591,000
Deferred expense (benefit) (148,000) (696,000) (173,000)
---------------------------------------
$ 2,053,000 $ 2,400,000 $ 2,418,000
=======================================
Differences between the provision for income taxes and the amount computed by
applying the statutory federal income tax rate to income before income taxes for
each of the three years in the period ended December 31, 1999, are as follows:
1999 1998 1997
---------------------------------------
Income before income taxes $ 9,066,001 $ 9,370,239 $ 8,910,197
=======================================
Income tax at statutory rate $ 3,082,440 $ 3,185,881 $ 3,029,466
Increase (reduction) resulting
from:
Tax-exempt interest income (1,164,147) (994,994) (835,711)
State income taxes, net of
federal tax benefit 168,300 180,180 176,880
Other (33,593) 28,933 47,365
---------------------------------------
$ 2,053,000 $ 2,400,000 $ 2,418,000
=======================================
<PAGE>
10. INCOME TAXES (CONTINUED)
At December 31, 1999, the Corporation had state net operating loss carryforwards
of approximately $1,054,000. These carryforwards expire in years 2006 to 2013.
The components of the Corporation's net deferred income tax (liability) asset
were as follows:
1999 1998
-------------------------
Deferred tax assets:
Loan loss reserves $1,442,000 $1,420,000
Excess servicing gains 32,000 43,000
State net operating loss carryforwards 55,000 53,000
Excess tax depreciation 20,000 16,000
Other 8,000 1,000
-------------------------
1,557,000 1,533,000
-------------------------
Deferred tax liabilities:
Safe harbor lease (159,000) (170,000)
Deferred loan fees (124,000) (272,000)
Undistributed earnings of an unconsolidated (528,000) (491,000)
subsidiary
Other (2,000) -
-------------------------
(813,000) (933,000)
Valuation allowance (48,000) (52,000)
-------------------------
Net deferred tax asset $ 696,000 $ 548,000
=========================
11. LEASES
The Corporation leases various banking facilities under operating lease
agreements from companies held by an estate of a former director and major
shareholder of the Corporation. All of the agreements include renewal options
and one agreement requires the Bank to pay insurance, real estate taxes and
maintenance costs associated with the lease. Rental amounts are subject to
annual escalation based upon increases in the Consumer Price Index. Aggregate
rental expense under the leases amounted to $541,554 in 1999, $534,105 in 1998
and $521,712 in 1997.
<PAGE>
11. LEASES (CONTINUED)
Future minimum rentals, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more consisted
of the following at December 31, 1999:
Year ending December 31:
2000 $ 319,463
2001 281,990
2002 225,096
2003 and thereafter 810,172
-------------
Total minimum future rentals $1,636,721
=============
12. SHORT-TERM BORROWINGS
Assets collateralizing Reverse Repurchase Agreements consist of U.S. government
and agency obligations held by the lender bank. At December 31, 1999, under
existing arrangements, the Bank could borrow up to $32,800,000 under reverse
repurchase agreements. There were no reverse repurchase agreements outstanding
at December 31, 1999 or 1998.
At December 31, 1999, the Bank had the ability to borrow federal funds of up to
$40,000,000 under a revolving line of credit agreement with lenders. Such
borrowings bear interest at the lender bank's announced daily federal funds rate
and mature daily. There were no federal funds borrowings outstanding at December
31, 1999 or 1998. Other short-term borrowings represent treasury, tax and loan
accounts due to the Federal Reserve Bank under a $6,000,000 line of credit. Such
amounts are secured by a pledge of investment securities in the amount of
$7,000,000 at December 31, 1999.
13. STOCKHOLDERS' EQUITY
Certain regulatory restrictions exist regarding the ability of the Bank to
transfer funds to the Corporation in the form of cash dividends, loans or
advances. As of December 31, 1999, retained earnings of the Bank in the amount
of $14,041,520 were available for distribution to the Corporation as dividends
without prior approval of regulatory agencies.
<PAGE>
13. STOCKHOLDERS' EQUITY (CONTINUED)
Under Federal Reserve regulations, the Bank is limited as to the amount it may
lend to its affiliates, including the Corporation. Such loans are required to be
collateralized by investments defined in the regulations. In addition, the
maximum amount available for transfer from the Bank to the Corporation in the
form of loans is limited to 10% of the Bank's stockholders' equity in the case
of any one affiliate or 20% in the case of all affiliates.
14. LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
Loan commitments are made to accommodate the financial needs of the
Corporation's customers. Standby letters of credit commit the Corporation to
make payments on behalf of customers when certain specified future events occur.
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Corporation's normal credit
policies. Collateral (largely real estate) is required based on management's
credit assessment of the customer.
The Corporation's maximum credit exposure for loan commitments (unfunded loans
and unused lines of credit) and standby letters of credit outstanding at
December 31, 1999, was $48,965,000 and $4,888,000, respectively. All such
arrangements expire in fiscal 2000.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table discloses fair value information about financial
instruments, whether or not recognized in the consolidated balance sheets, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. These techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. The table excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Corporation.
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The Corporation does not routinely measure the market value of financial
instruments such as presented herein, because such measurements represent
point-in-time estimates of value. It is not the intent of the Corporation to
liquidate and therefore realize the difference between market value and carrying
value and even if it were, there is no assurance that the estimated market
values could be realized. Thus, the information presented is not relevant to
predicting the Corporation's future earnings or cash flows.
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents approximate those assets' fair values.
INVESTMENT SECURITIES
Fair values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
LOANS RECEIVABLE
For variable-rate loans that reprice frequently (within the twelve-month period
following the date of measurement), and with no significant credit risk, fair
values are based on carrying values. The fair values for all other loans are
estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. The carrying amount of accrued interest approximates its fair value.
OFF-BALANCE-SHEET INSTRUMENTS
Fair values for the Corporation's off-balance-sheet instruments (lending
commitments and standby letters of credit) are based on fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. The fair value of such
instruments at December 31, 1999 and 1998, is not material.
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSITS
The fair values for demand deposits (e.g., interest and noninterest checking,
passbook savings and certain types of money market accounts) are equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
The carrying amounts for variable-rate fixed-term money market accounts and
certificates of deposit and fixed-rate certificates of deposit scheduled to
mature or reprice within the twelve-month period following the date of
measurement approximates their fair value at the reporting date. Fair values for
fixed-rate certificates of deposit scheduled to mature or reprice after twelve
months from the date of measurement are estimated using a discounted cash flow
analysis that applies interest rates currently being offered on similar
certificates to a schedule of aggregated expected monthly maturities of the time
deposits. The carrying amount of accrued interest approximates its fair value.
SHORT-TERM BORROWINGS
The carrying amount of short-term borrowings and related accrued interest,
approximates their fair values at the reporting date.
The carrying amounts and fair values of the Corporation's financial instruments
consisted of the following at December 31, 1999 and 1998:
1999 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------------------------------------
(In Thousands)
Cash and cash equivalents $ 45,482 $ 45,482 $ 76,202 $ 76,202
======================= =======================
Investment securities $142,022 $139,238 $134,538 $136,420
======================= =======================
Loans $318,899 $312,133 $277,184 $276,894
======================= =======================
Deposits:
Withdrawable on demand $339,779 $339,779 $338,089 $338,089
Certificates of deposit 119,691 119,798 111,446 112,116
----------------------- -----------------------
$459,470 $459,577 $449,535 $450,205
======================= =======================
Short-term borrowings $ 4,579 $ 4,579 $ 827 $ 827
======================= =======================
<PAGE>
16. TRI CITY BANKSHARES CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
December 31
1999 1998
----------------------------
Assets
Cash on deposit with subsidiary bank $ 417,624 $ 372,502
Investment in subsidiary 58,669,133 54,170,722
Investment in affiliated bank 1,860,317 1,765,971
Bank premises and equipment 1,966,246 1,979,348
Other net assets 211,513 229,317
----------------------------
Total assets $ 63,124,833 $ 58,517,860
============================
Stockholders' equity
Common stock $ 2,538,232 $ 2,520,205
Additional paid-in capital 10,335,369 9,726,974
Retained earnings 50,251,232 46,270,681
----------------------------
Total liabilities and stockholders' equity $ 63,124,833 $ 58,517,860
============================
<PAGE>
16. Tri City Bankshares Corporation (Parent Company Only) Financial
Information (continued)
STATEMENTS OF INCOME
Year ended December 31
1999 1998 1997
------------------------------------
Income from subsidiary bank:
Dividends $2,510,000 $2,085,000 $1,725,000
Management fees 499,800 571,800 526,800
Rental income 270,978 226,051 225,255
------------------------------------
3,280,778 2,882,851 2,477,055
Other income 84,934 81,346 70,555
Expenses -
Administrative and general 933,468 965,897 920,359
------------------------------------
Income before income taxes and
equity in undistributed net
income of subsidiary and
affiliated bank 2,432,244 1,998,300 1,627,251
Income tax expense 12,000 41,000 43,000
------------------------------------
Income before equity in
undistributed net income of
subsidiary and affiliated bank 2,420,244 1,957,300 1,584,251
Equity in undistributed net income
of subsidiary and affiliated bank 4,592,757 5,012,939 4,907,948
------------------------------------
Net income $7,013,001 $6,970,239 $6,492,199
====================================
<PAGE>
16. Tri City Bankshares Corporation (Parent Company Only) Financial
Information (continued)
STATEMENTS OF CASH FLOWS
Year ended December 31
1999 1998 1997
-------------------------------------
Operating activities
Net income $ 7,013,001 $ 6,970,239 $ 6,492,199
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for depreciation 120,364 117,625 116,496
Equity in undistributed net
income of subsidiary and (4,592,757) (5,012,939) (4,907,948)
affiliated bank
Other 17,804 41,623 48,950
-------------------------------------
Net cash provided by operating 2,558,412 2,116,548 1,749,697
activities
Investing activities
Net purchases of premises and (107,262) (37,057) (43,758)
equipment
-------------------------------------
Net cash used in investing (107,262) (37,057) (43,758)
activities
Financing activities
Sale of common stock 626,422 534,235 475,985
Cash dividends (3,032,450) (2,509,806) (2,118,973)
-------------------------------------
Net cash used in financing (2,406,028) (1,975,571) (1,642,988)
activities
-------------------------------------
Increase in cash 45,122 103,920 62,951
Cash at beginning of year 372,502 268,582 205,631
-------------------------------------
Cash at end of year $ 417,624$ 372,502$ 268,582
=====================================
<PAGE>
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998:
Three Months Ended
December 31 September 30 June 30 March 31
-------------------------------------------------------
(In Thousands, Except for Per Share Data)
1999
Interest income $8,622 $8,686 $8,326 $8,154
Interest expense 2,843 2,822 2,662 2,636
Net interest income 5,780 5,864 5,664 5,518
Provision for loan - (75) (75) (75)
losses
Other income 1,850 1,686 1,803 1,610
Other expense 5,128 5,210 5,133 5,012
Income before income 2,500 2,265 2,260 2,041
taxes
Income tax expense 561 528 522 442
Net income 1,939 1,737 1,738 1,599
Basic earnings per share 0.76 0.69 0.69 0.63
1998
Interest income $8,559 $8,600 $8,329 $8,052
Interest expense 2,838 2,873 2,747 2,713
Net interest income 5,721 5,727 5,582 5,339
Provision for loan (150) (150) (150) (150)
losses
Other income 1,854 1,741 1,662 1,669
Other expense 5,046 4,909 4,619 4,751
Income before income 2,379 2,409 2,475 2,107
taxes
Income tax expense 609 621 659 511
Net income 1,770 1,788 1,816 1,596
Basic earnings per share 0.70 0.71 0.72 0.64
<PAGE>
Report of Independent Auditors
Board of Directors
Tri City Bankshares Corporation
We have audited the accompanying consolidated balance sheets of Tri City
Bankshares Corporation as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tri
City Bankshares Corporation at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/Ernst & Young LLP
February 18, 2000
<PAGE>
Form 10-K
Shareholders interested in obtaining a copy of the Corporation's Annual Report
to the Securities and Exchange Commission as filed on Form 10-K may do so at no
cost by writing to:
Office of the Secretary
Tri City Bankshares Corporation
6400 South 27th Street
Oak Creek, Wisconsin 53154
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000313337
<NAME> TRI CITY BANKSHARES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,782
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 142,022
<INVESTMENTS-MARKET> 139,238
<LOANS> 318,899
<ALLOWANCE> 4,340
<TOTAL-ASSETS> 529,191
<DEPOSITS> 459,470
<SHORT-TERM> 4,579
<LIABILITIES-OTHER> 2,017
<LONG-TERM> 0
0
0
<COMMON> 2,538
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 529,191
<INTEREST-LOAN> 25,912
<INTEREST-INVEST> 7,673
<INTEREST-OTHER> 203
<INTEREST-TOTAL> 33,788
<INTEREST-DEPOSIT> 10,504
<INTEREST-EXPENSE> 10,962
<INTEREST-INCOME-NET> 22,826
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 20,483
<INCOME-PRETAX> 9,066
<INCOME-PRE-EXTRAORDINARY> 7,013
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,013
<EPS-BASIC> 2.77
<EPS-DILUTED> 2.77
<YIELD-ACTUAL> 5.09
<LOANS-NON> 595
<LOANS-PAST> 1,372
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 4,245
<CHARGE-OFFS> 186
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<ALLOWANCE-CLOSE> 4,340
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